The Bristol-Celgene merger is approved. Here are 8 challenges ahead

After months of horse-trading, hand-wringing, and heated debate, the $74 billion merger of Bristol-Myers Squibb and Celgene was finally approved by shareholders on Friday. “We’re very excited about the new company,” Giovanni Caforio, Bristol’s chairman and CEO, said at the meeting.

Now what?

Like Dustin Hoffman and Katharine Ross in the last scene of “The Graduate,” the two biopharma newlyweds got what they wanted, and now they’ll have to get used to one another’s idiosyncrasies. That means navigating a patent cliff, dealing with rough market dynamics, and trying to keep key employees from updating their résumés.

Here’s a look at the biggest issues facing Bristol-Myers and Celgene after their long-awaited union.

Revlimid and the patent cliff from hell

Congratulations, Bristol, you now own one of the largest drug-patent cliffs in the history of the pharma industry — $20 billion in Celgene product revenue (based on 2021 estimates) will disappear over the next nine years as generic competitors enter the market and gobble up market share.

Sixty percent of that liability falls on Revlimid, Celgene’s blockbuster multiple myeloma treatment. The first generic version of Revlimid is expected to enter the market in March 2022, but only on a restricted volume basis as dictated in a settlement agreement with the generic drug maker Natco Pharma. How fast Revlimid sales erode beyond 2022 remains undetermined because the legal wrangling continues between Celgene and generic drug makers. That fight is now Bristol’s.

Celgene’s pipeline must not stumble

Bristol acquired Celgene with full knowledge of the patent cliff, of course. Management’s working plan is to replace a good chunk of that lost revenue with newer drugs from Celgene’s pipeline.

Three of those Celgene drugs — fedratinib, ozanimod, and luspatercept — have been submitted to the Food and Drug Administration. If all goes right, fedratinib will be approved to treat myelofibrosis in September, with ozanimod (for multiple sclerosis) and luspatercept (for myelodysplastic syndrome and beta thalassemia) following in early 2020. Two CAR-T cancer therapies called bb2121 and liso-cel remain in late-stage clinical trials but are also crucial to the success of the Bristol-Celgene marriage. The margin of error for failures or delays is infinitesimally small.

Bristol’s cash cow is losing ground

Once upon a time, Bristol was at the vanguard of cancer immunotherapy. Back in 2016, the company’s Opdivo led the multibillion-dollar market and looked poised to maintain its lead. Then came a string of clinical trials that made Merck’s similar Keytruda look like the best product in the class, stealing market share from Opdivo and sliding Bristol’s therapy into second place.

That puts Bristol, which got about 30% of its revenue from Opdivo last year, in a tough spot. Opdivo is likely to face biosimilar competition in the next seven to nine years, and its diminishing stature in immuno-oncology underlines how much Bristol — like Celgene — needs next-generation cancer therapies to come through.

Keep the headhunters at bay

Mergers are not just about products and profits. People matter very much, too. Combining two large companies is never easy, but Bristol must be especially careful not to let talented scientists and businesspeople walk out the door because of intracompany rivalries or turf battles. Lifesaving medicines don’t just develop on their own. Want an early read on the success (or failure) of the Bristol-Celgene marriage? Check LinkedIn before the income statement.

Celgene’s many friends might have questions

Celgene has long been known as a ready and willing partner in biotech, and the company spent years stitching together a tapestry of deals that essentially gave it a call option on every new idea for treating cancer. Now, however, Celgene’s scores of partners might be wondering whether the combined company still values their relationships.

Some, like Bluebird Bio and Acceleron, have little to worry about, as their collaborations were name-checked by Bristol as keys to Celgene’s value. But others might not be so fortunate, including BeiGene, a company whose Celgene-licensed project happens to be a competitor to the Bristol-owned Opdivo.

Biotech at large is losing its most prolific business development player

No one in biotech doled out deal dollars quite like Celgene. Since 2008, $131 billion was spent by Celgene on acquisitions, partnerships, and licensing deals with smaller biotechs, according to DealForma. That’s more than all the money similarly invested by its big-cap biotech brethren, combined.

With Celgene subsumed, will Bristol’s pockets be as deep? If not, will biotech business development suffer?

The ride isn’t over yet for Celgene shareholders

Among the less-discussed facets of the merger is this: Under the agreement, every Celgene share is worth one share of Bristol, $50 in cash, and one lottery ticket called a CVR. Short for contingent value right, a CVR is a tradable note that entitles its holder to a cash payout if certain futures come true. In Celgene’s case, the cash amounts to $9, and the futures are these: Ozanimod and liso-cel must win FDA approval by the end of 2020, and bb2121 must do so by the end of 2021.

There’s no partial credit, meaning if any of those therapies gets rejected — or approved even one day after its deadline — the CVR is worthless. That makes this a fairly high-stakes proposition for Celgene shareholders. And, notably, the two parties in the deal have different expectations. As analysts at Mizuho pointed out earlier this week, Celgene assigns a roughly 69% probability of success, which gives the CVR a value of about $6, while Bristol believes it has a 45% chance of paying off, making the CVR worth roughly $4.

The CVR will trade on the open market, so we’ll soon find out what the wisdom of the crowd has to say about Celgene’s pipeline.

What’s in a name?

The Bristol-Myers Corp. and Squibb Corp. merged in 1989 to form Bristol-Myers Squibb. There’s been no outward suggestion from Bristol executives that another corporate rebranding is being considered. That’s sort of a shame, because to see the Celgene name, a longtime biotech bellwether, disappear, will feel odd.

Not that anyone’s asking our advice, but Bristol-Celgene Squibb has a nice ring to it. Or, how about Bristol-Myers Celgene? Not bad. Bristol-Myers Celgene Squibb starts to sound a bit too much like a law firm. Bristolgene-Myers Squibb-Cel? Please, no.

The Bristol-Celgene merger is approved. Here are 8 challenges ahead